Just like a natural person is birthed, journeys through the process of life, and dies, so does a business organization undergo a compelling journey from inception, and sometimes the decision to shut down or cease its operations becomes inevitable. In Nigeria, there are laid down rules and laws governing the operations of business organizations (companies, business names, and non-profit organizations) and this extends to its closure stage. The primary laws that oversee the end of a company are the Companies and Allied Matters Act, 2020, and the Insolvency Regulation 2022. This article seeks to examine the legal intricacies and processes involved before a company can be closed in Nigeria and offer a legal roadmap for a smooth process.
Legally, when a business name (especially a company) is at the stage of closure, it is said that such an organization is in the process of being wound up (simply put, the winding up process). The winding-up process is the procedure through which a company ceases its operations and dissolves its existence. This usually involves selling off assets, settling liabilities, and distribution of remaining assets or funds to existing shareholders in order of priority.
On the other hand, a registered business name and incorporated trustee, are closed by way of dissolution.
It is however worth noting that in Nigeria, when referring to business organizations, we have the business names, partnerships, incorporated trustees, and registered companies and the process of bringing these entities to an end varies and this will be succinctly discussed in this article.
HOW TO CLOSE A BUSINESS NAME?
For a business name, the process of ending a business is encapsulated under Section 819 CAMA, 2020. Under the Act, for a business name that ceases to carry on business, the following processes must be followed:
1. The individual or his representative or partners of the firm must deliver to the Registrar of Business Names, a notice that it has ceased to carry on business. This notice must be delivered to the Registrar within 3 months after the business has ceased to be carried on and if they fail to send the notice to the Commission, they would be liable to a conviction of fine as spelled by the Commission in its regulations.
2. On receipt of the notice above, the Registrar may remove the business name from the register.
3. If the Registrar has reasonable cause to believe that a business name is not carrying on business, he may send a notice to such firm, individual, or corporation.
4. The firm, individual, or corporation (business name) has 2 months to reply to the notice sent by the Registrar and if not sent, the Registrar of Business Names may remove such name from the register.
5. If the Registrar receives a letter confirming that the firm is no longer In business, he may remove the name from the register.
HOW TO CLOSE A REGISTERED PARTNERSHIP IN LAGOS STATE?
For a partnership to be dissolved i.e brought to an end, it can be in either of the following ways:
1. Act of partners i.e agreement of partners
2. Operation of law such as expiration of term or death of a partner.
3. Dissolution by the court
These are specified under Sections 31 – 34 Partnership Laws of Lagos State. Please take note that this law only applies to partnerships in Lagos State.
HOW DO I CLOSE AN INCORPORATED TRUSTEE
An incorporated trustee can be dissolved by the court after a petition for dissolution has been brought by either the governing body or council, one or more trustees, members of the association constituting at least 50% of the total membership, and the Corporate Affairs Commission.
According to Section 850 (2) of CAMA, an incorporated trustee can be dissolved on these grounds:
1. The aims and objects for which it was established have been fully realized and no useful purpose would be served by keeping the corporation alive;
2. The body corporate is formed to exist for a specified period, that period has expired and it doesn’t need to continue to exist;
3. All the aims and objects of the association have become illegal or otherwise contrary to public policy;
4. It is just and equitable in all the circumstances that the body corporate be dissolved; and
5. The certificate of registration of the association has been withdrawn, canceled, or revoked by CAC.
For dissolution of incorporated trustees to be effected, there must be a petition by the persons approved by the commission; a notice will be sent to those who will be affected by the intended dissolution. Also, after the satisfaction of debts and liabilities, all remaining properties shall not be shared amongst members but shall be transferred to another institution with objects similar to the object of the association.
HOW DO I CLOSE A COMPANY IN NIGERIA?
For a registered company to be closed in Nigeria, it can either be compulsory winding up by the court,
members, or creditors’ voluntary winding up or winding up subject to the supervision of the court. For there to be a compulsory winding up by the court, certain grounds must be available for that to succeed. Some of the grounds are:
1. The court thinks that it is just and equitable that the company should be wound up.
2. The company is unable to pay its debts
3. Where there is default in delivering the statutory report to the commission or in holding the statutory meeting.
4. The company has by special resolution resolved that the company be wound up by the court
5. The condition precedent to the operation of the company has ceased to exist, for instance, the object for which the company was formed has been fulfilled.
For member’s voluntary winding, the members must declare solvency, that is to say, they have made a full inquiry into the affairs of the company and have formed an opinion that within 12 months from the commencement of the winding up, the company will be able to pay its debts in full. Where the members neglect to do this, the creditors of the company will step in and petition for the winding up of the company.
We also have winding up subject to the supervision of the court. Here, upon application made by creditors, contributors, and others entitled under compulsory winding up, the court will step in and appoint someone (liquidator) to oversee the winding up of the company and distribute its assets. Where the affairs of a company have been fully wound up, the liquidator will make an application to the court for the dissolution of the company.
CONCLUSION
Shutting down a company in Nigeria goes beyond closing the doors of the office address or stopping operations. Some procedures should be followed to legally bring a business organization to an end and such must be followed strictly to avoid sanctions by the Commission.
Need to make further inquiries in this regard? Please book an appointment. Nee to file for winding up or dissolution of your company, business name, or incorporated trustee? Please leave a message or book an appointment through the Whatsapp icon on the lower right part of this page or HERE, and we’ll respond to you.
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